Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Deflating Mini U.S. Housing Bubble May Be Economy’s Next Problem

Housing-Market / US Housing Aug 03, 2013 - 12:51 PM GMT

By: Sy_Harding

Housing-Market

The housing and automobile industries are the main driving forces of the economy - in both directions. That makes sense since consumer spending accounts for 70% of the economy, and homes and cars are the biggest ticket items consumers spend money on. More importantly, unlike most purchases, it’s not just spending the money they made last week, but through loans and mortgages it’s spending in advance money they will earn for the next five to thirty years.


That housing and autos therefore continue to be the economy’s main driving forces was dramatically demonstrated when both home and auto sales were so instrumental in driving the economy and markets higher after the 2000-2002 meltdown. And then when the resulting real estate bubble burst in 2006, housing and autos led the way down into the sub-prime mortgage catastrophe and then the meltdown into the 2008-2009 Great Recession.

Their powerful influence continued when in 2008 and early 2009 $trillions were spent, mostly on the bailout of banks and the rest of the financial sector, but the economy didn’t begin recuperating to any noticeable degree until the housing industry and automakers began their substantial recovery.

And they have indeed experienced a substantial recovery.

While the auto industry in Europe continues in recession (auto sales down 8.2% last year to the lowest level in 18 years), by 2012 U.S. automakers had jumped from reverse gear all the way into 4th gear, posting their highest annual sales since 2007, with the pace of sales continuing so far this year (although automakers missed the forecasts for their sales growth in July).

Meanwhile, for close to two years the real estate sector has been blasting through the most optimistic forecasts for its recovery.

At the end of May new housing starts were up a huge 28.1% year-to-date. Existing home sales had increased 15.2% over the previous 12 months. Home prices have shot up 12.2% nationally over the last 12 months, the biggest year-over-year jump since March, 2006 (near the peak of the housing bubble). Prices were up more than 20% in some of the trouble spots of the last housing bubble like Florida, California, and Las Vegas. It’s been hot. The National Association of Realtors reported two weeks ago that 47% of all homes sold in June were on the market for less than a month. As in the big bubble of 5005-2006, multiple bids and selling prices higher than asking prices have been fairly common.

However, there have been some troubling signs in the recovery, easily ignored because the basic numbers of sales and prices have been so impressive.

For instance, it’s no secret that the recovery has been mostly driven by institutional investors building inventories of rental properties. For them it’s all about profit. So far they’ve been able to take advantage of low interest rates and depressed home prices. But as prices rise and that opportunity fades away there are already indications they are dialing back on adding more homes to their inventory. Speculators looking for quick profits by buying at the distressed prices and flipping for a quick profit have also been significant factors in the sales numbers. RealtyTrac reports that single family home flips, where a home is purchased and sold again within six months, were up 19% in the first half of this year, and up 74% from the first half of 2011. But RealtyTrac expects that interest to also fade as bargain prices disappear, and is already seeing ‘buying to flip’ tapering off in many markets.

A sustainable housing recovery has always needed real home buyers who intend to live in the homes, and particularly a healthy percentage of first-time home buyers. We haven’t been seeing that, and we’re not liable to any time soon with the higher home prices and higher mortgage rates raising monthly mortgage payments significantly.

Meanwhile, even much of the reported increases in new home construction have been for multi-family housing for renters. As of June 30, single-unit housing starts were 67.6% below their January, 2006 pre-recession level.

And now we’re seeing the first indications of the mini-bubble potentially beginning to deflate.

New housing starts plunged 9.9% in June, to their lowest level in 10 months. Permits for future starts fell 7.5%. Existing home sales declined 1.2% versus the consensus forecast for a 1.5% increase. Pending Home Sales fell 0.4% in June. Construction Spending unexpectedly fell 0.6% in June, well below the consensus forecast for an increase of 0.5% (and the largest monthly decline in five months). And these reports are mostly from housing activity in the period prior to the spike in mortgage rates of the last six weeks.

The real estate sector led the way down into the financial meltdown and 2007-2009 bear market. It turned back up in early 2009 precisely at the bear market low even though housing sales and prices were still tumbling.

With the housing recovery potentially stumbling again investors would do well to keep an eye on the SPDR Home-Builder etf, symbol XHB, and home builder stocks like Toll Brothers (TOL), DR Horton (DHI), Pulte Corp (PHM), and Lennar Corp (LEN).

The Home Builder etf XHB was down more than 12% in May and June, but has been recovering some but lagging well behind the overall stock market’s spike to new highs.

Sy Harding is president of Asset Management Research Corp., and editor of the free market blog Street Smart Post.

© 2013 Copyright Sy Harding- All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Sy Harding Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in